NELA And GAP Support Broad Interpretation Of SOX Anti-Retaliation Provision

NELA and the Government Accountability Project (GAP) joined together in an amicus brief to support two whistleblowers who reported allegedly wrongful accounting and fee practices for certain Fidelity mutual funds in Lawson v. FMR LLC (Case No. 12-3), currently pending on the merits before the U.S. Supreme Court. After reporting these allegedly fraudulent activities, both were retaliated against for having blown the whistle. After the plaintiffs filed whistleblower complaints with the Department of Labor and then brought suit in federal court, the defendant sought to dismiss their claims on the grounds that employees of contractors or subcontractors are not protected by Section 1514a of the Sarbanes-Oxley Act (SOX). This issue is now before the Supreme Court after the First Circuit found that these employees were not protected by SOX.

SOX was enacted in the aftermath of the Enron debacle. Yet Enron had virtually no direct employees, just like the Fidelity mutual funds. Enron fragmented its critical functions among non-public affiliates and its non-public accounting firm Arthur Andersen. The First Circuit’s cramped reading of the Sarbanes-Oxley Act would deny whistleblower protection to the employees of these non-public affiliates, even though these were the very employees that Congress intended to protect.

NELA and GAP argue that the remedial nature of SOX calls for broad and inclusive application, which is necessary to prevent a crisis in the mutual fund industry, such as the one that occurred in the banking sector in 2008. An interpretation of “employee” that limits coverage to employees of public companies would undermine SOX’s basic purpose. Publicly traded companies increasingly use a variety of contractual relationships to separate functions into organizations focused on those functions. These employees are in a position to expose corporate fraud. In the context of the mutual fund industry, all the employees would be without whistleblower protection under Section 806.

We further argue that an interpretation of the term “employee” to cover employees of private contractors and subcontractors is consistent with the plain text of the statute, the legislative history, the remedial purpose, and Department of Labor procedural regulations and policy implementing Section 806. A contrary interpretation would leave a significant number of employees unprotected.